by Emily Hechler 
Growing up, I remember seeing the book “What to Expect When You’re Expecting” on my mom’s nightstand as we anticipated my brother being born. What I don’t remember seeing is a book about what to expect financially when you’re expecting. Consider this your guide to financially planning for a new addition to your family. Knowing how to financially prepare for your baby’s arrival empowers you to make informed decisions, set realistic goals, and reduce stress. From pre-baby purchases to ongoing monthly expenses throughout your child’s first year, we’ll give you sustainable money management tips for your growing family.
How Much Does Baby’s First Year Cost?
While the cost of welcoming a baby can vary depending on the family and their financial situation, it’s important to research how much it can cost to raise a baby in their first year. This season can be expensive and catch you off-guard if you aren’t prepared. By breaking down baby’s expenses by their growth stages, you can get a better understanding of how much each stage will cost.
Pre-Baby Expenses
When planning to welcome a little one, you’ll need to start saving ahead and purchase some baby essentials. Depending on your housing, you may opt to plan a nursery or keep your little one in your room for a while. This timeline will determine when you need to buy most of your new furniture. No matter where your little one will sleep, you’ll need to purchase key items including a car seat, stroller, clothes, diapers, feeding supplies, and other care items.
You should also plan ahead for labor and delivery expenses, along with the first round of medical bills that may follow after birth. Contact your health insurance provider early so you have a clearer understanding of what to expect financially.
In the first few weeks after baby arrives, you may also need to manage billing details for your hospital stay and your baby’s care. Medical facilities understand that adding a newborn to your insurance plan takes time, so your final bill totals may change after coverage is updated.
0-3 Month Expenses
Once your baby arrives, the preparation stage quickly shifts to ongoing newborn expenses. Your baby will likely have pediatrician visits around three days, one month, and two months old. You’ll also continue purchasing larger sizes of clothes, diapers, feeding supplies, and other daily care items as your baby grows.
During this zero-to-three-month stage, you may also need to finalize childcare plans if you and your partner expect to return to work after parental leave.
3-6 Month Expenses
When your baby is three to six months old, you can expect two more doctor’s appointments to check your baby’s growth and overall health. This age range is also when you’ll likely want to finish furnishing a nursery if you haven’t done so already. The three-to-six-month age range is when you may start paying for baby’s ongoing childcare.
6-12 Month Expenses
Between six and 12 months old, baby will have two more milestone appointments. While baby grows substantially in this age range, you’ll likely notice an uptick in personal care and feeding items. Overall, baby’s first year of life can cost anywhere from $20,000 to $50,000. Since healthcare and insurance costs vary greatly from family to family, it’s important to research your company’s plans to determine which option is the best for your family.
How Do I Budget for a Baby?
Now that you understand how much the different stages of your baby’s first year can cost, you can start to budget for your baby’s arrival and future. While everyone’s financial situation is different, planning ahead will help you be financially ready for your little one’s arrival.
Review Your Budget
The first step is to review your current budget. If you don’t follow a budget, now is a great time to make a budget based on your current income and spending trends. A new child will force you to adapt your spending and saving habits. If you can, start saving for baby around a year before their expected arrival. This will give you a little margin if your baby is born earlier than expected.
During pregnancy, you’ll need to save for baby’s hospital bills and first few doctor’s appointments. You can also buy some essential items like diapers, clothes, feeding supplies, bedding, a car seat, and stroller among other care supplies.
Calculate Your Expected Income
While you await baby’s arrival, you should get up to date on your employer’s parental leave policy. Some employers don’t give full pay during parental leave, but some do. Determine how much income you can expect to receive during baby’s first few months of life, as you will need to continue paying for your other expenses, even with less income. Some families opt to live off a single income when a baby arrives. We’ll talk more about how to determine if this is a good option for your family later.
Fund Your Emergency Savings
If you don’t already have an emergency fund, now is the time to start saving. A $1,000 emergency fund is a great first milestone. However, plan to save at least three to six months of your living expenses before shifting your savings to another goal.
If an emergency comes up before your baby arrives, having money set aside can help cover those costs without interrupting your plan for your baby savings. A High Yield Online Savings account can make it easy to grow both your emergency fund and baby fund while keeping your money accessible.
Save for Your Child’s Future
While your child’s future financial situation may not even be a thought yet, the earlier you can start saving, the more time your money has to grow. Alltru offers a CUbby savings account for kids ages 0-7 years old. This is a great starting place to put some money just for them. You can also save for your child’s education with a Coverdell Education IRA. With a Coverdell Education IRA, your contributions are tax-free, and you can contribute until your child turns 18 years old. During your baby’s childhood, you can save up to $36,000 in an account!
Can We Afford to Live on One Income?
As I mentioned earlier, some families choose to go from two to one income after their little one is born. While this luxury was more achievable for previous generations, the right balance of expenses to income can make it possible in this economy. Here is how you can determine if you can afford to go from two to one income.
Budget with Your Current Income
Before jumping ahead to plan for one income, you must know your current spending and saving habits. Create a zero-based budget using your current two incomes and expenses. A zero-based budget works best since you’ll create specific categories for your spending and saving, which will show you exactly where your money is going.
Budget with a Single Income
Next, create a zero-based budget with your expected single income. You’ll likely find that several categories in your budget need to be adjusted to account for smaller paychecks. This may require some trade-offs. Your priorities will help guide where you can afford to cut back. Nonessential expenses like eating out and entertainment will be easier to adjust and maintain for the long term. Essential expenses like groceries, loan payments, and long-term savings will be more difficult to reduce.
Adjust Your Expectations
Continue refining your budget with your reduced income in mind until you find a balance that allows you to meet your personal needs and your other priorities. If you can’t adjust your budget to meet both your needs and other priorities, focus on your needs first. Then, add in your other priorities. This could also be a temporary adjustment. Calculate how long your other priorities will be delayed and see if you can afford the time and money to not proactively work on those priorities.
Lizzy and Deonte’s Growing Family
To budget for your baby’s arrival confidently, let’s review a scenario that puts everything into practice.
Calculating Their Current Budget
Lizzy and Deonte live in Bridgeton in a home that they own with a mortgage and pay $1,800 a month for their housing expenses. They have two cars, and one has a loan with a $335 monthly payment and 16 months until it’s paid off. They’re also paying for a student loan with a $250 minimum monthly payment, but the loan won’t be paid off for five more years. Lizzy and Deonte also have a credit card with a $250 minimum monthly payment. They’re on track to pay off their credit card in 6 months if they pay $600 a month instead of the minimum Their combined gross income is $92,000.
Determining Their Financial Goals
Lizzy and Deonte are planning on having a baby 12 months from now. Since they read this blog article, they want to save $10,000 before their baby arrives since Lizzy doesn’t have fully paid maternity leave. In addition, they also plan on spending $3,000 on a nursery, car seat, and other care items, but they plan to use money from their current savings to pay for these expenses.
Adjusting Their Expenses
As they start budgeting with their current income, they calculated that they need to save $833 a month to reach their $10,000 goal. However, with their current budget, they put $600 into general savings but don’t have the margin to reduce other categories. That leaves them $233 below their goal each month. Since they’re paying more than the minimum payment on their credit card each month, they can adjust their contributions here. They can either revert to paying the minimum on the credit card bill and take longer to pay it off. They can also pay off the credit card in six months and then start saving $600 a month after the credit card is paid off and reach their $10,000 savings goal three months later, which is well before their baby would be due to arrive.
Adjusting Their Income
Currently, their housing makes up roughly 23.5% of their gross monthly income. However, Lizzy wants to quit her full-time job after maternity leave. Deonte’s salary is currently $52,000 or $4,333 monthly. Living on just his income makes their housing expenses total over 41.5% of their gross monthly income, which isn’t maintainable long-term. To keep their housing at 28% of their gross monthly income, they need to increase their household income to $6,430 a month. Lizzy can confidently find a part-time job that will increase their monthly household income to $6,700. With this plan, Lizzy and Deonte plan to put $200 in a Coverdell Education IRA for their little one’s future education expenses.
Let the Planning Begin
Successfully preparing financially for your baby’s arrival is achievable when you create an adaptable plan as your family expands. Understanding the real cost of raising a little one and following money management tips for your growing family enables you to rest easy knowing that you’ve budgeted for your family’s needs. This transition can shift from anxious anticipation to hopeful anticipation because of your planning. If you need additional financial counseling, schedule an appointment with a Certified Credit Union Financial Counselor to give you a plan and a boost in confidence that will get you through this next exciting chapter of your life.
